CPC unveils new pricing mechanism

FORMULA CHANGE The economics ministry said that using Dubai and Brent crude oil prices would better reflect the firm's main oil suppliers

By Jessie Ho / STAFF REPORTER

State-run CPC Corp, Taiwan (CPC, 台灣中油) said yesterday it was cutting gasoline prices by NT$0.7 per liter this month and would apply a new scheme linking domestic prices to Dubai and Brent crude oil prices starting next month.

Smaller rival Formosa Petrochemical Corp (台塑石化) later announced that it would match CPC's price cut.

Prices were adjusted based on the old floating fuel price mechanism, or 80 percent of the fluctuation in the price of West Texas Intermediate crude oil traded on the New York Mercantile Exchange from July 23 through last Monday.

After consulting experts and different groups, CPC will apply starting next month a new measure proposed by the Ministry of Economic Affairs and approved by the Cabinet yesterday.

Price adjustments will be announced on the first day of each month and become effective the next day, Chen said.

Pricing changes were announced on a weekly basis under the old system.

CPC procures 70 percent of its supply from the Middle East and about 25 percent from West Africa. Under the new price weighting, Dubai crude will account for 70 percent and Brent crude for 30 percent. Monthly changes in domestic oil prices will be determined based on the 30-day average for Dubai and Brent crude in the past month compared with the previous month.

CPC will freeze the scheme when oil prices rise by 15 percent or more in consideration of their impact on consumer prices, Chen said, adding that the ministry did not set a limit to the price fall.

CPC chairman Pan Wenent (潘文炎) refused to comment on how the new pricing mechanism would affect the company's finances, saying it would depend on international oil price trends.

CPC reported a net income of NT$16.1 billion for the first seven months of the year, exceeding the NT$14.9 billion target set by the government. But the earnings mainly came from CPC's petrochemical business, overseas oil exploration and other reinvestment projects, Pan said.

Its domestic gasoline sales during the same period posted a deficit of NT$9.52 billion, he said.

In response to CPC's announcement, the Consumers' Foundation said the state-run firm should lower prices further.

"CPC should further cut NT$2.5 per liter given its poor operation," Hsieh Tien-jen (謝天仁), vice chairman of the Consumers' Foundation (消基會), said by telephone.

The state-run company's operating cost, including personnel and subsidies offered to heavy users, is higher than that of Formosa Petrochemical, yet it has a lower operating efficiency compared to the private refiner, Hsieh said.

Formosa Petrochemical always follows CPC's pricing, making the market a virtual monopoly and leaving consumers no choice, said Liang Kuo-yuan (梁國源), president of Polaris Research Institute (寶華綜合經濟研究院).

In the absence of a free market, consumers can hardly trust this type of pricing scheme, Liang said.